What is a Mutual Fund?

Welcome to the Investors Trading Academy talking glossary of financial terms and events. Our word of the day is “Mutual fund” A mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. When you contribute money to a fund, you get a stake in all its investments. That's a big deal: Since most funds allow you to begin investing with as little as a couple thousand dollars, you can attain a diversified portfolio for much less than you could buying individual stocks and bonds. Plus, you don't have to worry about keeping track of dozens of holdings - that's the fund manager's job. The price for a share of an open-end fund is determined by the net asset value, or NAV, which is the total value of the securities the fund owns, divided by the number of fund shares outstanding. The NAV is the price at which you can buy and sell shares, as long as you don't have to pay a sales commission, or "load." You have to pay a load fee when you buy from a broker, financial planner, insurance agent or other adviser. There are load and no-load funds. By Barry Norman, Investors Trading Academy